Redundancy Process for Small Businesses: A Plain English Guide for UK Employers

Making someone redundant is one of the most stressful decisions a small business owner faces. It is also one of the most legally exposed - a redundancy handled without the correct process is simply an unfair dismissal with a different label. This guide tells you exactly what a fair redundancy process looks like, what you must pay and where employers go wrong.

What redundancy actually means

Redundancy is a specific legal concept. It applies in three situations: the business is closing entirely, the workplace where the employee works is closing or the requirement for employees to carry out a particular type of work has reduced or ceased.

That last category is the most common for small businesses, you no longer need someone to do that job or you need fewer people doing it. The key word is genuine. The role must actually be disappearing or reducing. Redundancy is not a mechanism for removing an employee you are unhappy with while avoiding a disciplinary process.

Step one: establish a genuine redundancy situation

Before you do anything else, be clear that the redundancy is genuine. Ask yourself: is the requirement for this work actually reducing? If you intend to redistribute the work among existing staff, that can still be genuine redundancy. If you intend to hire someone else to do the same work shortly afterwards, it is not.

Document your reasoning. Write down why the role is at risk, what has changed in the business and what the alternatives are. This is your evidence of a genuine redundancy situation if the decision is challenged.

Step two: identify who is at risk

If only one person does the role and the role is disappearing, the pool is straightforward. If multiple people do similar work and you need to reduce headcount, you need a selection process.

Use objective selection criteria. Common criteria include skills and qualifications, performance records, attendance records and length of service. Apply the criteria consistently and document the scores. Never use criteria that could constitute indirect discrimination, such as criteria that disproportionately affect employees on maternity leave, part-time workers or employees with a disability.

Step three: consult individually

For fewer than 20 redundancies, you must consult individually with each employee at risk. There is no statutory minimum period for individual consultation, but in practice two to four weeks is standard for most small business redundancies.

Consultation is not telling the employee they are being made redundant. It is a genuine two-way process in which you explain the situation, share the provisional selection scores, consider any alternatives the employee suggests and explore whether there are any suitable alternative roles in the business.

Hold at least two consultation meetings. Document both. The employee has the right to be accompanied by a trade union representative or a work colleague at these meetings.

Step four: consider suitable alternative employment

Before confirming the redundancy, you must consider whether any suitable alternative roles exist in the business. If a vacancy exists that the employee could reasonably do - even with training - you must offer it to them.

If the employee unreasonably refuses a suitable alternative role, they may lose their entitlement to statutory redundancy pay. What counts as reasonable depends on the role, the pay, the location and the employee's circumstances.

Step five: confirm the redundancy in writing

If consultation has been completed and no suitable alternative exists, confirm the redundancy in a letter. The letter must state the reason for the redundancy, the notice period or payment in lieu of notice, the statutory redundancy pay entitlement, any other payments due including accrued holiday, the leaving date and the right of appeal.

What you must pay

Employees with two or more years of continuous service are entitled to statutory redundancy pay. The calculation is based on age and length of service, using a weekly pay figure capped at the statutory maximum (currently £643 per week).

You must also pay the notice period stated in the contract or the statutory minimum, whichever is higher. Outstanding holiday pay must be paid at termination. If you have an enhanced redundancy scheme in your contracts, you must honour it.

What changes from January 2027

Common mistakes that create tribunal risk

Selecting someone for redundancy because of a protected characteristic; pregnancy, disability, age rather than using objective criteria. Failing to consult genuinely, treating the consultation meetings as a formality. Not considering suitable alternative roles. Making someone redundant and then hiring someone else into the same role within weeks. Failing to pay the correct notice and redundancy entitlements.

How Birchlow helps

Birchlow generates the letters you need for a compliant redundancy process - the at-risk letter, the consultation meeting invitation, the redundancy confirmation letter and the appeal outcome letter - all updated to reflect current employment law. The platform logs each stage so your process is fully documented if a claim is made.